Ladies and gentlemen, thank you for standing by. And welcome to the Coherus BioSciences 2019 Second Quarter Earnings Conference Call. My name is Liddie and I will be your conference operator for the call today. At this time, all participants are in a listen-only mode. And as a reminder, this conference call is being recorded.

I would now like to turn the call over to David Arrington, Vice President of Investor Relations and Corporate Affairs. Please go ahead..

Thank you, Liddie, and good afternoon, everyone. After close of market today, we issued a press release on our second quarter financial results. This release can be found on the Coherus BioSciences website. Joining me for today's for will be Denny Lanfear; Coherus CEO; Dr.

Jean Viret; Chief Financial Officer; Jim Hassard, Senior Vice President of Marketing and Market Access; and Thomas Fitzpatrick, Chief Legal Officer.

Before we begin our formal remarks, I would like to remind you that we will be making forward-looking statements with respect to product development plans, all of which involve certain assumptions, risks and uncertainties that are beyond our control and could cause actual results to differ from these statements.

A description of these risks can be found on our most recent filings with the SEC. In addition, Coherus BioSciences does not undertake any obligation to update any forward-looking statements made during this call. I will now turn the call over to Denny..

Thank you, David. Good morning and thank to all of you for joining us today. As you know, UDENYCA experienced strong uptake in the first quarter, and we are pleased to report today that launch performance through the second quarter remains very strong.

Our second quarter performance is the direct result of our strong execution across all key customer segments and what is now a well-validated biosimilar-specific strategy. UDENYCA sales are growing with significant momentum through the first half of the year, providing a solid foundation for continued growth for the second half of 2019 and beyond.

In a few moments, our Senior Vice President of Marketing and Market Access, Jim Hassard will provide you with additional context and the drivers behind this performance, to help you better understand the potential of sustainability of our market conversion efforts.

First half results also demonstrate that the Company is well-positioned to deliver on the long-sought promise of biosimilars for patients, providers and payers, while creating value for our shareholders.

We believe this is true for the current portfolio of UDENYCA, anti-TNF and ophthalmology biosimilars, as well as any additional products that we may commercialize in the medium to long term. Now, following Jim's remarks, our Chief Financial Officer, Dr.

Jean Viret will review the financial results, including details on gross sales and net sales proportions, as well as making some brief comments with respect to using the secondary data sources as a proxy for net product sales.

Lastly, Jean will comment on what we feel is a significant milestone for the Company, that is the achievement of profitability. After Jean's remarks, I'll provide you with a summary of today's key points and guidance on expected unit market share for the rest of 2019 and beyond, before we go to the Q&A.

Now, last two quarters have been exceptional, defining what constitutes a successful biosimilar commercialization and establishing UDENYCA launch as the benchmark for future biosimilars. We think the key for being successful in the biosimilar business is to be a biosimilar company.

So, we don't think it's the coincidence that the most successful biosimilar launch to-date was executed by a company solely focused on the biosimilar opportunity. UDENYCA net sales in the first half of 2019 were approximately $120 million, supported by strong exit unit market share of about 13% at the end of June.

Now, this market share again has been realized against both Onpro and pre-filled syringe formats, and in all segments of the market, validating our broad and deep launch strategy. Further, these results give us confidence to project continued market unit share increases for the remainder of 2019 and through 2020.

The successful launch is the result of our significant preparation and strong execution. On previous calls, we outlined the investments we made in the years prior to launch, and no substantial investments have set the stage for the success of what we see today. Now, I'll let Jim review in greater detail the execution enabled by these investments.

Jim?.

Thank you, Denny. I'm happy to provide additional color to put our performance into perspective. Our success has been built upon three critical factors.

First, a deep understanding of the market drivers and barriers, which led to our customer-centric launch strategy; second, a value proposition tailored to each market segment and stakeholder; and third, organizational execution, delivering value to the market on a segment by segment basis.

As noted by Denny, our value proposition of branded benefits with biosimilar value focused on superior services, quality supply and segment-specific rational contracting resonated with the marketplace. Market share gains for the biosimilar pegfilgrastims came from both, Neulasta prefilled syringe and Onpro formats.

And we expect our future growth to come from share erosion in both. This past quarter, we continued to grow UDENYCA share in all market segments, oncology clinics, 340B and non-340B hospitals. And we expect significant market share gains in all these segments going forward.

Second quarter represented the first opportunity for 340B hospitals to access pass-through reimbursement, a competitive advantage for UDENYCA compared to the reference product Neulasta. The value proposition in the 340B segment is particularly strong based on reliable supply, full line distribution, price, and now reimbursement.

As a reminder, pass-through status extends for a total of 36 months or until April 2022. Based on strong sales in the first quarter, the Center for Medicare Services established an average selling price or ASP for UDENYCA of $4,054 that was effective July 1, 2019.

This ASP represents 97% of the list price or wholesaler acquisition cost of $4,175, reflecting our disciplined contracting approach to date. The market share and sales are also a direct result of excellence and organizational execution.

In the field, the Coherus teams have been effective in promoting UDENYCA and educating on biosimilars and reimbursement. Our educational efforts to support rapid navigation of the P&T approval process in hospitals has also been successful. Our payer team continues to lock coverage wins with more than 100 insurers and payers.

And customer utilization of our patient and provider services, branded as Coherus COMPLETE continues to increase and support the UDENYCA Choice Without Compromise. Year-to-date, we've had over 3,000 calls and requests through Coherus COMPLETE. We've had great coordination with our distributor partners to ensure product availability.

As we communicated in early July, we have had more than sufficient supply to satisfy anticipated demand in future. Overall, we've encountered very few surprises or unexpected barriers. We've entered the second half of 2019 with great momentum and a strong month of July.

We are confident that our strong first half performance will continue through the rest of 2019 and beyond..

Thank you, Jim. And of course, we’ll be happy to take any further questions on the execution and the market segments during the Q&A session. Now, I'd like to pass it on to Company's CFO, Jean Viret to review the financial performance in the quarter.

JV?.

Thank you, Denny. I will now review the main financial results for this quarter. Net product revenue for the second quarter of 2019 was $83.4 million and $120.5 million for the first half of the year. Net product revenue for the second quarter of 2019 increased 125% as compared to revenue in the first quarter.

Gross to net sales discounts and allowances as a percentage of gross sales was approximately 44% in the second quarter, as compared to approximately 45% in the first quarter of 2019.

With respect to publicly available data sources that may be used to track the Company's sales performance, we would simply caution that these data sources primarily be considered directional and not absolute for the purpose of defining net sales on a GAAP basis.

Cost of goods sold for the second quarter of 2019 was $0.6 million, resulting in a gross profit margin of 99% for the quarter, compared to a gross margin of 94% for the first quarter of 2019.

We anticipate that gross margins going forward will be in the 95% range, as we will pay a mid-single-digit royalty on net product revenue beginning on July 1, 2019. Research and development expense for the second quarter of 2019 remained stable at $18.9 million as compared to $18.8 million for the second quarter of 2019.

Selling, general and administrative expense for the second quarter of 2019 increased by $3.8 million to $36.5 million, as compared to $32.7 million for the first quarter of 2019.

The increase was mainly due to increased compensation, based on the outstanding performance of our sales team and related commercial functions to support the ongoing commercialization of UDENYCA. Overall, operating expenses were $55.9 million for the second quarter.

And we anticipate that they will range from $55 million to $60 million per quarter for the remainder of the year. Cash, cash equivalents and investments in marketable securities increased to $111.9 million at June 30, 2019 as compared to $96.4 million at March 31, 2019.

The $15.5 million increase in cash during the second quarter came primarily from the $12.7 million of positive operating cash flow.

Net income attributable to Coherus for the second quarter of 2019 was $23.6 million, or $0.32 income per share on a fully diluted basis, compared to a net loss of $20 million, or $0.29 loss per basic share for the first quarter of 2019.

More importantly, as Denny mentioned, we are profitable, year-to-date with a net income attributable to Coherus for the first six months of 2019 of $3.6 million or $0.05 per share on a fully diluted basis. Now, I would like to turn the call back to Denny for his concluding remarks..

Thank you, Jean. Let me make a few additional remarks in closing and provide you with some guidance in the future. Two quarters in the launch, we are now well into market formation for pegfilgrastim biosimilars. As a result, we have better understanding of the P&T committee timelines in hospitals, which has a rate limiting step.

We also now understand how to present our overall value proposition to capture market share from all originated dose formats. Our commercial organization is working as a multifunctional, well-integrated team across all regions.

We have made consistent progress with payers, both nationally and regionally and found them very supportive of biosimilars when provided the appropriate value proposition. Now, when we first launched, we estimated it would take three or four quarters to achieve our current level of in-depth market understanding.

Having progressed faster than anticipated in all these dimensions, we are now able to provide you with the following guidance. First, in terms of market share, we expect a 20% or greater exit share at the end of 2019 on units’ basis. Secondly, we expect there to be continued growth beyond this 20% through 2020.

Lastly, we expect operating expenses in 2019 to range from $55 million to $60 million per quarter. We believe that the success we've achieved in the first six months will continue and we look forward to updating you on our progress. We’re happy to open up for all questions..

[Operator Instructions] Our first question comes from Mohit Bansal of Citigroup. Your line is now open..

Great. Thanks for taking my question, and congrats on the progress. Couple of questions from my side.

Can you please give some color on gross to net as you provided in the first quarter 10-Q as well, where do we stand right now?.

Yes. I'll let Jean Viret handle that one, Mohit. Thanks for your question.

JV, can you comment on the gross to net in Q1 versus Q2?.

Yes. Essentially flat, slightly better in Q2 versus Q1. It varies on multiple factors, such as inventory at the end of the quarter, as well as actually the mix of customers you have. But, we don't think that it's going to be varying a lot, given the market being what it is.

So, I don't have a lot of color that I can give you at this point, except to tell you that there is about 10 factors that play a role here..

But relatively flat across the two quarters, relatively flat throughout the year, Mohit..

And then, the other part is on the 340B, there have been a lot of litigations around going back to ASP plus 6% for grant as well. Where do you see this shaking out? And in terms of the contracting you're doing for next year, where do you think the hospitals are thinking, how do you think these hospitals are thinking around this dynamic? Thank you..

I'll let Jim take that one? Jim, do you want to take it?.

Yes. So, CMS have appealed. They actually just put out some guidance Mohit that actually suggests to the hospitals into the market that the current reimbursement formulas and methodologies will remain for the foreseeable future..

And your next question comes from Chris Schott of JP Morgan. Your line is now open..

I guess, my first question, you mentioned kind of existing Q2 at 13% share, targeting an exit share of at least 25% by year-end.

Should we be thinking about a similar kind of price per unit or so maybe just kind of similar 44% to 45% gross to net as that ramp occurs over the next couple of quarters, or should we think about some price erosion as you scale volumes? And I got a few follow-ups from there..

Okay. So, first in terms of exit share, we're talking about June versus Decemberish end of those two ending months for those two. So, we ended June as we indicated, somewhere around 13, we're looking at 20% or better we're guiding to for the end of December.

With respect to the gross to net, I think we just mentioned that we feel that's going to be fairly flat in the in the 45ish range for the remainder of 2019 the next two quarters.

Did you have a follow-on behind that one, Chris?.

And then, follow-up, yes, so second one was just as we think about Sandoz competitive launch coming, just help us how are you thinking about that third player entering the market and what dynamics or what impact that could have to the competitive landscape?.

Yes. I'll let Jim take that one.

Jim, do we have any thoughts to share at this point?.

So, I think we always expected a third competitor in this marketplace. What we're looking at Sandoz, they've been public in terms of announcing their -- when the FDA accepted their file, et cetera. So, we know that they've got to get to coding, et cetera. And they won’t have pass-through status likely until next year.

So, the guidance that we've provided for this year obviously takes all of that into account..

Yes. I think that we’ll have about a one year lead with 340B pass-through status..

And then, just final for me is, how are you thinking about further innovator contracting on Neulasta? And I guess, as we think about kind of United dynamics, do you see that's kind of a one-off situation or could we see a broader trend of how the innovator kind of reacts to some of the share erosion that they're seeing at this point?.

Yes. We were obviously disappointed with the decision that UnitedHealthcare. We continue to be in discussion with them. Fortunately, it's still early, the policy applied as of July 1st. And thus far, what it appears to us is it does apply to a limited number of plans. We also have not seen this with other payers to date at this point.

So, united seems to be a one off..

Thank you so much. And your next question is from Ken Cacciatore of Cowen and Company. Your line is now open..

Thanks so much. Also, congratulations to the team for such a seamless launch. I know, it's a lot of work, and congrats on that.

I just wanted to ask about your competitor, Mylan, if there's any thoughts on how they're supplying in the marketplace, if you could give us any color, hearing anything, seeing anything or feeling anything from their competitive situation And then, also just wondering, you did mention your release about your pipeline programs.

So, maybe a little bit more color on timing? And also you put in here Enbrel into the discussion. So just wondering if you give us an update on -- your thoughts behind it, kind of maybe how quickly you could turn around a BLA if maybe the lawsuit went your competitor’s way, which put you in a position to maybe have this opportunity as well. Thank you.

.

All right. Thanks, Ken. Good to hear from you. Well, let me let me take the first one first. With respect to Mylan, obviously, there's two biosimilar pegfilgrastims on the market, ourselves and Mylan. We believe that our very, very strong commitment to supply is a differentiator.

We announced during the quarter of course, that we went up to 400,000 syringes, we launched with 350,000 syringes. We have a very, very strong inspection record with the regulators at our facility, both the FDA and the EMA have been through there multiple occasions.

And in earlier calls, I think that we have reviewed our really stellar inspection record, not only just at KDI but also at our analytical facility which took zero 43s in Camarillo we had inspections here at our headquarters took zero 43s. Our analytical lab that our immunogenicity took zero 43.

So, Coherus has a very significant commitment to quality that we have backed up with investment over the past couple years. And the way we look at that is that has paid off very well for us, that emphasis on very high quality supply, and have a very strong commitment and quality organization internally.

And I think that has been a differentiator in the market. With respect to the pipeline, let me just start with the anti-TNFs and then on through ophthalmology. We expect to launch our Humira biosimilar 1420 mid-2023, as previously announced.

And in terms of ophthalmology, we haven't said too much about that, but I would say that you'll probably hear more about the ophthalmology franchise as we make further progress over the next six months, so, if not on the November call, the call after that. We're currently in a number of things with the ophthalmology franchise.

But we have reiterated earlier that we think ophthalmology is an excellent segue from oncology. A lot of the very same drivers, very same dynamics, Medicare Part B, buy-and-bill, and so on. Now, with respect to your Enbrel question, of course, we're watching the Sandoz Amgen case closely. We're taking a look at our own internal timelines.

We have not, of course, provided any guidance in terms of how long it would take to turn a BLA on Enbrel. BLAs typically take about a year to put together. And currently we're focused on the one product which has a certain launch window, which is mid-2023, the Humira biosimilar.

Now, if something happens, we'll take a close look at Enbrel, but we're not able to provide any guidance right now as to how quickly we could change gears and focus on Enbrel..

Thank you. Your next question comes from Douglas Tsao of H.C. Wainwright. Your line is now open..

Just maybe, Jean, if you could help understand a little bit on the cost of goods, I know that there was some inventory that you worked off in the first quarter. Obviously, moving and then we'll have the loyalty to Amgen sort of kick in. But, again, we saw a quarter with incredibly strong cost of goods or gross profit from your standpoint.

You know you guys can make 95% so is this, in terms of your ability to produce UDENYCA, really the baseline on how we should be thinking about that?.

Well, for now, yes. As you know, we produced quite a bit of our substance prior to approval and that was expense in R&D. And as we indicated, we had about, when it launched, 200,000 to 215,000 syringes available. So, we have to go through all that material before the new substance that has been produced is actually being utilized and sold.

So, yes, we'll be around 95%ish in the foreseeable future and then that margin will start to decrease a little bit, mostly because we'll use the substance that was produced after approval and, second, of course, the denominator may change. The price per syringe may start to come down. And these are, I would say, a year to two years out.

Right?.

Yes. I think, it's a good question. Of course, 99% margins are very high, Doug. But as JV indicated, we have to work through the 350,000 syringes, which is about a third of the annual $4 billion market. So, that's quite a bit. So, just how many years it takes us to work through that remains to be seen.

The second point that I'd make, though, is that this material has three-year dating in the syringe and one-year dating in the bulk. So, we've got a pretty nice window in terms of the durability of that inventory, also, to carry us forward..

And then just maybe a question for you, Denny or Jim. Just in terms of the share gains that you expect to make, you're certainly looking forward to a lot more success.

Are you expecting to see -- is that going to be mostly new accounts that you're picking up or is it simply that you're going to be taking more share within individual accounts who are already buying product from you?.

Yes. Doug, thank you for the question. That's a level of granularity that we're really unable to comment further on.

As we indicated on our prepared remarks, we did think it was going to take us three or four quarters to come to this level of understanding that we currently have at the market to have the confidence to project where we would be at the end of the year and to have additional confidence that we'd go forward here in 2020 with additional gains.

Just how that breaks down or just what the mix is in terms of converting additional accounts, or what the mix is of accounts and new accounts and so forth, is a little difficult to model. So, I wouldn't want to provide you information that we couldn't stand behind or didn't otherwise have very strong data to support.

And when you get four or six quarters out in front of things, it gets a little difficult to do that..

Okay. And then just one final one.

Now that you've achieved profitability, do you expect to sort of really ramp up the investments in the ophthalmology portfolio?.

Well, I would make two comments about that. Firstly, we're guiding here to about $55 million to $60 million in cash used per quarter for the remaining of 2019. The second point that we have -- I'm sorry..

Operating expense..

Operating expense. Thank you, JV. The second point that we have made is we're not going to start any expense Phase 3s in 2019.

Those are pushed into 2020 and beyond, right? So, you can expect that we will incur both Phase 3 costs and various manufacturing costs with respect to the ophthalmology programs over the period of time of 2020, 2021, and 2022, consistent with a filing that would get us to market some time in, say, late ‘23, earlyish ‘24.

So, we're happy to talk about that in a little more granular detail with you in the future. But that's very much the way we see it. So, I wouldn't really characterize it as ramping up now that we're profitable. I think for the remainder of 2019, I think that we're going to do a pretty good job of keeping things in check.

But the Phase 3s will kick in, I believe, sometime in 2020-2021..

Thank you. And your next question comes from Mike Wolff of Baird. You may now ask your question..

Great. Hey, guys. Thanks for taking the question and congratulations as well on the strong launch here. So, I just had a question on the UDENYCA launch and, in particular, if you can maybe comment on just some of the dynamics you're seeing across the Onpro segment.

And then, specifically, what are just some of the key levers that you can use to drive continued share in that segment? Thanks..

Maybe I'll tee that one up for Mr. Hassard.

Jim?.

Yes. So, Mike, two things. No. 1, what we're seeing and our experience in the field is we are seeing accounts adopt UDENYCA in favor of Onpro or switching or converting Onpro to UDENYCA. The second thing is we are seeing that in the data as well.

So, we look at IMS data and what we're seeing is a decline in the IMS data both on a units basis and in a market share basis as well..

Yes. Mike, I'd make two more points here. First of all, we believe the erosion of the Onpro business over time is an excellent source of growth for us in the medium term. And then, secondarily, we continue to believe that the Onpro segment, really the actual demand for that is probably a 15% sort of share. Maybe a little more.

So, we think there's substantial growth into that segment that's possible for us in the future. We consider that a real growth opportunity..

Thank you so much. And our last question comes from Balaji Prada of Barclays. Your line is now open..

Hi. Thanks for taking my questions. And congratulations on the results and on turning cash flow positive. I had a couple of questions. Firstly, I appreciate that you have provide us guidance on your 2019 exit market share. And Denny, in your closing remarks, you mentioned that would see meaningful growth on this in 2022.

Does this factor in Sandoz entry? The second question was on the recent proposed policy changes, Denny, can I have your latest updates on this and what could this mean for your strategy overall?.

So, first, let me reiterate our guidance. We are guiding to an exit share at the end of December of 20% or greater, and we are further guiding in 2020 -- we haven't quantified that or characterized that, we have simply said we see further growth beyond that 20% in 2020.

It's difficult, as I indicated a minute ago, to look four quarters or six quarters out and make predictions. However, all of our models, of course, include Sandoz coming to market and are based upon the public statements that they've made, I believe, in February with respect to the filing.

So, whether they actually launch at the end of this year or early in 2020 remains to be seen. Also factor in their achieving of 340B pass-through status in April of 2020. So, yeah, the answer to that is that is part and parcel of our modeling.

With respect to the policy changes, any specific policy changes you'd like us to comment on?.

This one with reimbursement rates and the first stage of it being a proposed change from 6% to 8% and what could this mean for you..

Yes. Look, I'll let Jim Hassard take a crack at that one.

Jim?.

So, we continue to track the legislation closely. In our discussion on Capitol Hill and with the administration, we've consistently encountered strong support for a vibrant, competitive market for biosimilars and we'll continue to advocate for patient and physician choice.

There is a broad understanding that if patients can't access biosimilars, they can't realize the significant savings biosimilars offer both patients and the government. The legislation is evolving so I don't want to comment or we don't want to comment at this time on any specific provision.

But we're happy to follow up on any questions moving forward..

I would say that we've had a couple of trips to D.C. in the past six months. We find the administration to be very pro-biosimilars and, actually, we find both sides of the aisle to be very pro-biosimilars. It's a rare thing when people can all agree on one thing.

We don't know exactly, not can we predict exactly how that will manifest itself in terms of legislation. But both sides of the aisle, a number of folks, all see biosimilars as a way to provide price competition as per the original act, the PCIA..

Understood. Since we have Jim, just one question to you, Jim.

In terms of the competition, are you seeing Sandoz potentially replicating the same kind of sales setup that you guys have set up over the last couple of years? So, is there any kind of imitation of your strategy that you're seeing in the market?.

So, first, understand that Sandoz already has their sales force in place and they're out there selling Zarxio. And our expectation is that they'll add pegfilgrastim to their bag. In terms of strategy, we don't want to comment in terms of what they may or may not do..

Yes, we really can't. I would say these are markets and have competition. We went into a market where we were second to market. Mylan had launched I think six months ahead of us. We're doing well there. I think that we'll do fine, Sandoz. But we have high respect for those folks. They're tough competitors, very sharp. But, the market is as it is..

Thank you so much. This concludes our call. A replay of the webcast will be available on coherus.com. Thank you so much. And have a great day, everyone..

Thank you..

Thank you..

Thank you, Liddie..